There’s a perception that financial advice is only for the super-rich and, while some advisers only advise on wealth above a certain level, many do not. If you own a property, have savings, investments or a pension, however small, you would probably benefit from financial advice. With so much government tinkering to the pensions system recently, it has become harder to navigate for many, so good financial advice has never been more important.
Financial advisers (or advisors if you prefer the American spelling) have suffered some reputational damage recently from mis-selling scandals such as poor pension transfer advice given to British Steel workers by an unscrupulous few. But the majority of financial advisers genuinely have their clients’ best interests at heart. Many advisers have been in their field a long time and pride themselves on building long relationships with people they serve, and even different generations within families. When you’re thinking about employing a financial adviser, you need to make sure you end up with someone you can trust. This article will tell you how.
What is an independent financial adviser?
But first, what is an independent financial adviser (IFA) and what do they actually do?
An IFA is called independent because they are not tied to any particular product provider. They can look across the whole of the market to recommend any product they think is suitable for you although, in practice, they probably don’t have the time to look at every single product out there. But it does mean they should be free from bias. You may also come across restricted advisers. As the name suggests, they focus on a more limited range of products and providers rather than researching the whole marketplace.
A financial adviser will work with you to build and manage an investment portfolio which aims to meet your long-term financial goals. Their expertise is especially important when it comes to retirement, as they can try to ensure your money grows enough so that you can retire at the age you want, with the income you want. But they can also help you with tax and estate planning, getting the right insurance cover, budgeting, saving, making a will, and some will even be able to advise you on mortgages.
How much does financial advice cost and can you negotiate fees?
Many advice firms will offer a free consultation in which they will do a ‘fact find’ to understand your situation and what you want to achieve by taking financial advice. They will probably also use this time to explain their charging structure. Advisers can no longer take commission on most financial products that they recommend, instead they have to charge their clients fees. They might charge a fixed fee for different services or a single project fee, a percentage based on the value of your total assets (anything from 0.5% to 5%), or even an hourly fee. You may also have to pay additional product fees if the adviser buys products on your behalf.
According to Unbiased research into independent financial advisor fees, the average cost of an initial financial review is £500, and you might pay £2,500 for at-retirement advice on a £200,000 pension pot. The average hourly rate for a UK financial adviser is £150, the Money Advice Service says, but some will charge as much as £300.
It may sound a lot, but the right advice can pay for itself over the long run. Research by Unbiased found people who start taking advice aged 35 could add an extra £25,730 to their pension pot, giving a return of 4,336% on the initial cost of advice (calculated as £580 to advise on a £200 a month pension contribution). They would benefit from avoiding costly investment mistakes, and potentially pay less tax with the right advice.
Speaking of which, there is now a tax-free way to pay for pensions advice, but not many people know about it. The Pensions Advice Allowance, introduced by the government in April 2017, lets pension savers withdraw £500 a year, tax free, up to three times in their life, to be used for financial advice.
Can you negotiate on fees? It depends whether you feel comfortable haggling over the cost of professional services. Would you bargain with your solicitor? What about your plumber? Personally, I would feel that it’s a little disrespectful, but if you’re happy to try it, you might find you get a better response from a small firm or a one-man band than from a large network.
How do financial advisers make money?
In the old days (well, pre-2013), advisers used to be able to take commission payments from providers like asset management firms for recommending their products. The financial regulator recognised that this was probably not in most clients’ interests and changed the rules. Now, financial advisers make money from the fees they charge for their service. However, they can still take commission on certain products like mortgages and insurance policies. How much does a financial adviser make in a year? Perhaps not as much as you’d think. According to Glassdoor, the national average salary for a UK financial adviser is £40,600.
When should you get financial advice?
The short answer is: as early as possible. The longer your adviser has to plan, and the longer your money has to grow in financial markets, the better chance you have of meeting your financial goals. Unbiased research found that, if you took advice from age of 25, you could add £34,300 to your pension pot, equivalent to a 5,813% return on your initial outlay.
Although starting earlier is better, it’s never too late to seek advice. A poll of 200 IFAs found that 28% were confident they could boost a client’s retirement income if consulted at retirement, compared to 73% if a client came to them 15 years before they retired.
How to find a financial adviser near you
To find the best financial advice, you’ll need to do your research. Although you can opt for online-only advice, you might prefer to have at least one face to face conversation with your would-be adviser. This means you’ll want to know how to find a good independent financial adviser in your area. To give you a few ideas on where to start, here’s how I would find a financial adviser near me. I’d start by visiting one of the financial adviser directories such as VouchedFor, Unbiased, Financiable or the CISI’s WayFinder.
On Unbiased, for example, I enter my postcode and choose ‘search locally’ for a financial adviser (you can also search for mortgage advisers, solicitors and accountants on some of these sites). The search engine throws up lot of results, and I then select the areas of advice I’m interested in, say, financial planning, investments and pensions. I can narrow this further, for example, I could say I’m interested in investing for income, and socially responsible investments, retirement planning and pensions consolidation. I select the value of my pension pot, and the value of my other income and assets, and how I would prefer to be charged for advice, for example, a fixed fee or percentage of assets. Based on these choices, I have a narrowed down list of local advisers to look through, research and contact, and I even can see any special offers available such as a free investment healthcheck.
What to look for when choosing a financial adviser
Financial advice is very much about interpersonal relationships, so you’ll want someone you can get along with. The question is how to find the right financial adviser. Hopefully some of the adviser search tools will help you draw up a shortlist, but another sensible tactic is to ask around your network for personal recommendations. When you think you may have found a few good candidates, do your homework. Think about what to look for in a financial adviser – you want them to have experience, qualifications, a proven track record of delivering for clients, and maybe a specialist depending on your needs. Maybe you want an adviser with a lot of LGBT clients, or one who knows a lot about green or ethical investing, for example. You might feel you want an adviser specialising in advice tailored to women, or entrepreneurs. Work out what is important to you and use that to guide your search.
You can check adviser credentials on the FCA’s register of regulated people and you can also see independent financial adviser qualifications on the Chartered Insurance Institute’s website. You should also look for financial adviser ratings and read reviews to find out what other people have been saying.
An initial meeting can give you a good sense of whether you click with an adviser – this is important as you should think of your relationship with them as a long term one, this is how you will get the most benefit from their financial planning skills. Trust is crucial, so don’t ignore your gut feeling if you want to find a financial adviser you can trust. Ask the adviser for case studies to show how their advice has helped real clients. Unbiased has a useful checklist of questions to ask during an initial meeting and it’s a great tool to remain focused when you start to suffer from information overload.
Important questions might include:
- What services do you provide?
- Is your advice restricted in any way?
- How will you deliver my advice (phone, online, face to face)?
- How often will my portfolio be reviewed?
- How much will I pay in total for this advice?
Be wary of anyone who pressures you into making a decision then and there, this is a red flag. High pressure sales techniques have no place in the office of a reputable financial adviser.
What about robo-advice?
You may have heard of robo-advice and are wondering how this fits into the picture when it comes to financial advice. Robo-advice services are automated services which ask questions about your financial situation, how you feel about risk, your investment time horizon, and what you want to achieve. Then they direct you to one of several pre-built portfolios depending on your answers. Often the underlying investments in these portfolios will be passive products like index trackers or exchange-traded funds, making them easier to rebalance and keeping costs down. You will usually pay less than 1% for these services, less than you would pay for traditional financial advice. But they are not really comparable as you won’t get advice on other things like tax planning or a property purchase, this is no-frills, algorithm-based investing, not a holistic approach to your finances led by a real human. Some advisers are offering their own robo-advice services to appeal to those consumers who want the benefit of advice, but have smaller pensions and savings pots, less complex financial circumstances, or perhaps can’t afford the fees involved in a full advice service.
How to get free financial advice online
Of course, you can find plenty of free financial advice online, but it won’t be tailored to you, and this is what you pay for when you pay a professional for independent financial advice. You will find generic financial advice tips on the web, and you may find free online sources useful as guides to basic investing principles such as diversification, learning the difference between active and passive investments, mortgage advice basics, or the various types of pension scheme out there. Just be sure you are looking at information from a reputable source, and that it is up to date. The government-run Money Advice Service is a good starting point, and you may also find helpful guides on some of the stockbroker and fund supermarket platforms such as Hargreaves Lansdown and AJ Bell. For pension advice, the government’s Pension Wise service lets you book an hour-long face to face or phone appointment to help you make sense of your pension options, if you are aged 50 or over. You could also visit the Pensions Advisory Service, which is sponsored by the Department for Work and Pensions. But remember these services won’t make product recommendations or tell you what to do, they are more of a useful starting point.